Investment class struggle

The US Q1 earnings round has continued to go well. 413 of the S & P 500 constituents have reported an average increase of 13.5% on a year ago, thereby helping to support not just the index but also rippling out to equity markets elsewhere. One last and important hurdle is that 25 out of the 87 constituents yet to report are retailers and signs of depressed sales will not just affect their individual share prices but also be taken as in ill omen for growth in US consumption. Moreover, depending how one interprets Chart 6 there could be a further knock-on effect if the retailers’ earnings are badly hit. Does Chart 6 show that Consumer Confidence also makes people bullish on shares or that a bull stock market also boosts confidence? Perhaps they take turns or is this an example of George Soros’s reflexivity theory? Hard to tell but no doubt some clever algo programmers will try to find a binary solution.

Chart 1: Which is the chicken and which the egg?

Source: Business Insider

As 2017 progresses it is becoming increasingly difficult to choose the winners amongst different classes whether by type, geography, industry or specific index. Charts 7-11 make sufficiently depressing reading that I shall refrain from further elaboration.  They certainly reinforce Daniel Stewart’s advocacy of stock picking and active trading!

Chart 2: US equities’ Price/Earnings Ratios (including Shiller PE10) are elevated


Figure 3: FTSE MIB in Milan: what could possibly go wrong?


Figure 4: If equities are expensive why not try High Yield Bonds> Everyone else is!


Chart 5: If everyone piles in the High Yields become low but risk remains high


Chart 6: How about commodities? Yes, how about them?

Source: Bloomberg